U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Retirement
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 02-06-2016, 04:11 PM
 
Location: SoCal
13,191 posts, read 6,308,074 times
Reputation: 9810

Advertisements

I think it's very complicated. I just withdraw what I need to spend. I ran a few calculators before retiring to make sure the finance is ok, but to be honest, even if the numbers aren't there I would retire anyway.
Reply With Quote Quick reply to this message

 
Old 02-06-2016, 05:45 PM
 
Location: Central IL
15,201 posts, read 8,509,345 times
Reputation: 35593
Quote:
Originally Posted by rjm1cc View Post
Unfortunately you are probably correct for those that do not want to learn about generating income from investments. I agree a person could pick 3, 4, 5% and in most cases this will work out. The big risk is poor investment returns at the beginning of retirement that forces the sale of investments (should have a cash bucket of a few years of expenses) and thus increase the likelihood of running out of money. If the market starts off strong at the beginning of retirement then the person might be left with more money than they wanted.

Thus I think the rule has to have added a bucket of cash for expenses in down markets and base next years distributions on the value of your investment accounts for the prior year.

In general using the RMD (required minimum distribution) from the IRS regulations about IRA's and a bucket of cash is probably the way to go for those that do not want to put a lot of thought into the process. To refine a little more if you anticipate large outlays for say home repairs, new car, emergency fund, medical costs etc you should try and set aside assets for these purposes and not use then in determining your annual spendable income. Maybe meet with an hourly fee financial planner a few years prior to retirement to figure out a simple plan you can manage on your own is the way to go for the group of people you describe.
I do often hear about keeping the cash bucket so as to not sell when stocks are low. But then I wonder, that cash bucket doesn't just materialize out of nowhere - I'd have to save that as well, on top of whatever I put into the market. Can you explain why it's better to keep it outside the market rather than just go ahead and invest it so it is then earning something? I'm not being snarky - I just need to better visualize how it would work.
Reply With Quote Quick reply to this message
 
Old 02-06-2016, 06:23 PM
 
Location: RVA
2,164 posts, read 1,264,598 times
Reputation: 4451
The idea of the cash bucket in retirement is basically just taking profits at an opportune time, rather than being forced to liquidate in order to obtain cash at a bad time, and reducing principal unnecessarily. If you KNEW for sure, your saving was always appreciating, then you would be correct, there is no point to the bucket system. The bucket system is a series of bets, that your return on investments will, on average, do better, over time, and during each of those good cycles, you can cash out on the earnings, rather than reduce principle. If you are not in Equities, then the point is indeed moot.
Reply With Quote Quick reply to this message
 
Old 02-06-2016, 08:21 PM
 
Location: Florida
4,356 posts, read 3,692,049 times
Reputation: 4084
Quote:
Originally Posted by reneeh63 View Post
I do often hear about keeping the cash bucket so as to not sell when stocks are low. But then I wonder, that cash bucket doesn't just materialize out of nowhere - I'd have to save that as well, on top of whatever I put into the market. Can you explain why it's better to keep it outside the market rather than just go ahead and invest it so it is then earning something? I'm not being snarky - I just need to better visualize how it would work.
Take a look at the per share value of Amazon in Dec 15 and Jan 16. If you sold some stock at the high in Dec you could have gotten about 200 per share more than in January. Thus you would sell less shares in Dec than Jan to cover your expenses. You would have more share left for the future. The idea is to put your needed expenses in the cash bucket so you are not forced to sell stock in a down market and can wait util the stock recovers.

Yes your total return on your investments will be less. The Gov suppression of interest rates is really bad for people that have to rely on their savings to live on. But this is the world we live in.
Reply With Quote Quick reply to this message
 
Old 02-06-2016, 09:53 PM
 
71,471 posts, read 71,652,652 times
Reputation: 49058
the reality is except for getting beat up right out of the gate cash buckets do not offer any advantage after the first up cycle .

they weigh down the up cycle so any benefit from selling stocks when they are down is lost because the bigger gains cushion the fact you are selling at a loss .

there have been so many academic study's on this and all came to the same conclusion . cash buckets are a mental thing , not an actual advantage after the first up cycle ..
Reply With Quote Quick reply to this message
 
Old 02-07-2016, 03:41 AM
 
71,471 posts, read 71,652,652 times
Reputation: 49058
kitces took a look at whether drawing from cash buckets when markets are down actually helped.

https://www.kitces.com/blog/managing...cing-approach/
Reply With Quote Quick reply to this message
 
Old 02-07-2016, 03:55 AM
 
71,471 posts, read 71,652,652 times
Reputation: 49058
Quote:
Originally Posted by rjm1cc View Post
Take a look at the per share value of Amazon in Dec 15 and Jan 16. If you sold some stock at the high in Dec you could have gotten about 200 per share more than in January. Thus you would sell less shares in Dec than Jan to cover your expenses. You would have more share left for the future. The idea is to put your needed expenses in the cash bucket so you are not forced to sell stock in a down market and can wait util the stock recovers.

Yes your total return on your investments will be less. The Gov suppression of interest rates is really bad for people that have to rely on their savings to live on. But this is the world we live in.
you would have to be a really great market timer to pull this off every time you needed more cash over 30 years .

what if you sold earlier at what you thought was the high to raise cash and amazon soared after that ? had you waited until january you missed those gains .

in the end the math of it all says since in all cases you are pulling the same draw , from the same total return on the portfolio , which pocket you pull it from and when over the long term is pretty much a wash .

unless you could be a perfect market timer , what you basically end up doing is rebalancing in to cash .


there is no difference between maintaining your allocations by pulling from equity's and bonds equally called a systematic withdrawal to keep the same allocation vs a bucket system . you pull from cash and bonds no matter if up or down .

the only difference is depending how many years cash you keep your allocations to equity's can go higher and higher until you finally sell equity's to refill cash and bonds with cash buffer buckets . .

but the weight of holding years of cash in advance for those rainy days are the gains you give up if things go higher .

you can google systematic withdrawals vs buckets and see a number of study's .

having cash and fooling ourselves when we are down by saying at least we don't have to sell at a loss makes us feel better but their is no study that shows we are doing anything financial wise

Last edited by mathjak107; 02-07-2016 at 04:32 AM..
Reply With Quote Quick reply to this message
 
Old 02-07-2016, 04:50 AM
 
71,471 posts, read 71,652,652 times
Reputation: 49058
how bad were things for the 1966 group which are the numbers the 4% safe withdrawal rate is based on ?

far worse then most individuals and financial writers realize . mostly because they think it is based on some average returns that involve markets and interest rates being what they were and performing well or even average . it is clearly not . it is based only on the worst sets of numbers not only that we actually had but if monte carlo simulations are used , any set of numbers a computer can come up with using hypothetical combinations to find something even worse then we had .

after running 10,000 simulations and combinations dr pfau found little difference between our actual worst case vs what a a computer could come up with changing the sequences in to what was possible but didn't happen .. the monte carlo results came in at about 3.75% vs 4% actual .

so just what did this unlucky group in 19695 or 1966 see ?

for the 30 year period they saw a 9.67% annual return for a 60/40 portfolio starting in 1966 becomes a 4.46% real return after inflation, 5.41% for stocks and 2.39% for bonds. not really to bad right ?

however for the first 15 years, the 60/40 portfolio had a return of 5.74% nominal but -0.18% per year after inflation. Stocks returned 0.8% per year during this period and bonds returned -2.60% per year. And to round it out inflation averaged 5.92% during this 15 year period..

the fact markets bounced back later on after the first 15 years passed and improved the averages meant nothing , to much got spent down over the first 15 years in all the failure cases .

the math for that 15 year period was the worst ever for a retiree group , nothing to date has matched it .


Take a look at the 1966 retiree’s portfolio value, withdrawals, and current withdrawal rates during 30 years.

while the chart shows at the end of 30 years there was 10k left from 1 million after spending , when each year was calculated monthly as someone would actually pay bills and not yearly 4% failed . you need to drop below it a bit to actually have that 10k left from the 1 million you started with .



to put things in to perspective 90% of all 111 time frames left you with more then you started with 30 years later and 67% of the time left you with 2x what you started with .

the fact these poor soles ran out of money over the same 30 years gives you an idea how bad it was for that time frame and just how bad things need to be to have 4% fail . that isn't to say it can't going forward which is why you need to monitor things , but it is a tough act to follow to have it happen .

remember you can get no return on your money by sticking it in a mattress and inflation adjust 4% and it can last decades .

the important thing to remember is not all your money should be allocated to income generation anymore then when you were working you spent every penny coming in .

the 4% safe withdrawal rate assumes you will spend down principal to near zero generating that income planning for 30 years , but what if you live 35 ? .

so just like when working you have to decide how much in resources you want to preserve for emergency's , unexpected large expenses , long term care , heirs and do not include that in the calculations of your income generation ability .

as robin points out life can be filled with expenses so just like your working years you have to allow for the unexpected .

never forget the 4% "rule" assumes only income generation will not falter but you could be broke after 30 years or need a large sum of money in anyone year for something that is a budget buster .

Last edited by mathjak107; 02-07-2016 at 05:28 AM..
Reply With Quote Quick reply to this message
 
Old 02-07-2016, 05:24 AM
 
Location: Nebraska
1,886 posts, read 2,297,215 times
Reputation: 5321
Why is it so difficult to understand that any plan based on historical data is worthless now. We are in uncharted waters. All this talk about what happened for the past 100 to 150 years or so has no relevance today.
Reply With Quote Quick reply to this message
 
Old 02-07-2016, 05:26 AM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,920,408 times
Reputation: 6716
Quote:
Originally Posted by txfriend View Post
4% rule or not, I don't have much choice in the matter. With our IRA's the RMD is approximately 4%.
RMD rules mean you have to take money out of tax-deferred accounts and put it in taxable accounts (and pay any applicable taxes on it). There's no rule that says you have to spend the money - which is basically what we're talking about here. Robyn
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Retirement
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top